Italy Sells EU7 Billion of Bonds, Demand Weakens From May Sale

Italy faced weaker demand today at a sale of 3- and 10-year bonds worth 7 billion euros ($8.65 billion), pushing yields on its traded debt higher.

The government auctioned 3.5 billion euros of securities maturing in 2020 with investors bidding 1.29 times the amount of 10-year debt on offer, that’s down from the 1.37 times at the May 28 sale. Italy also sold 3.5 billion euros of three-year bonds with a bid-to-cover ratio of 1.39 times, lower than the 1.52 times at the previous sale.

“At first sight, there are low bid-to-cover ratios,” Wilson Chin, a fixed-income strategist at ING Groep NV in Amsterdam said in an e-mailed message. “The most important thing and positive for the market is the fact that the auctions are done and at the maximum amounts.”

Italy sold the 10-year debt today to yield 4.09 percent compared with 4.07 percent at the May sale. The three-year bond was priced to yield 2.33 percent, down from 2.35 percent at the May auction.

The yield premium, or spread, that investors demand to buy Italian 10-year bonds over comparable German bunds, the European benchmark, widened by 10 basis points to 156 basis points as the yield on Italy’s 10-year bond gained the same amount to 4.19 percent.

Last month the government led by Prime Minister Silvio Berlusconi passed spending cuts worth 24.9 billion euros ($30.15 billon) aimed at cutting Italy’s deficit to 2.7 percent of gross domestic product in 2012. The $2.1 trillion economy has the Euro region’s largest public debt at 115.8 percent of GDP and must finance more than 150 billion euros in maturing bonds this year.

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